Wednesday, October 6, 2010

Differentiation Strategy

Best Buy uses differentiation strategy because of their unique brands and services offered exclusively to their costumers. They strictly focus on costumer-centric model, which means “looking at an enterprise from the outside in rather than inside out – that is, through the lens of the costumer rather than the producer” (blogs.hbr.org). In effort to understand its costumers are, Best Buy took the time and have start selling solutions instead of products. Another thing that differentiates them from other companies are their exclusive brands such as Geek Squad, Insignia, and Dynex which are manufactured and sold at company’s retail locations.

Porter’s Five Forces

Buyer Power

Best Buy has a low buyer power. To keep that buyer power low, Best Buy offers two credit cards. Best Buy Credit Card and Reward Zone Program MasterCard. The Best Buy Credit Card gives you an instant decision on approval, lets you shop in-stores and online. And no interest charge if full amount is paid within six months. The Reward Zone Program MasterCard allows you to use your card at Best Buy stores and everywhere else MasterCard is accepted. Points are earned each time you use your card. When your card accumulates a lot of points, prizes such as gift cards are presented. The gift card amount can range up to $250 and up. Another way to keep buyer power low is by offering many products in-store that many retailers do not carry such as 3d TVs. Best Buy also incorporates E-collaboration into their strategy.

E-collaboration is the use of technology to support work activities with integrated collaboration environments, knowledge management with knowledge management systems, social networking with social networking systems, learning with e-learning tools, and informal collaboration to support open-source information. They do this by using social networking sites such as Twitter and Facebook to display theirs ads and featured sale items that many people are interested in.

Supplier Power

Best Buy suppliers power is high because of the variety of products from many manufacturers and other companies. Best buy is a big store with a lot of products, and most of them are not their own. The company sells a lot of different electronics gadgets, and offer a range of choices that will allow customer to accommodate their wants and needs. However Best Buy, therefore, can not dictate how much influence that suppliers have, because suppliers have the power to not send the company products if they feel as if Best Buy is not doing well selling their product. Suppliers can choose to send their products exclusively to their competitors and no longer sell to Best Buy. With this Best Buy creates switching costs and entry barriers by changing the prices on their products that they sell every week. They either match or beat their competitors and bring more people into their buildings. Supply Chain Management is simply a way a tracking inventory and information among business processes and across companies. Best Buy's supply chain approach, unlike others, is to focus less on cost and more on making sure the company is not missing opportunities to satisfy customers. Another approach is allowing frontline employees to influence the supply chain to meet local demand for by letting employees override inventory management plans. The facts of the customer experience must drive the supply chain.

Threat of Substitute Products

Threat of substitute products or Services is considerably high for Best Buy because of wide variety of products that Best Buy is carrying. Some examples we can account for are cell phones, games and computers. There are many specialty stores out there that deal only with those certain products and are offering a lot of good deals, which Best Buy, being such a broad company is not able to provide. Retailers like GameStop, EB Games just to name few, offer the same products at the lower price because they allowed to, buy back older games at a discount and exchange them for new releases for example. Their costs go down when they buy at discount for exchange. It is also important to note that Best Buy has no switching costs that could make costumer reluctant to switch to another product or service supplier. For example is the case with services of a cell phone provider that charge an extra money when costumer wants to break off the contract before its due date.

Threat of New Entrants

The threat of new entrants is relatively moderate for this company because Best Buy is a well-known and established store for many years and has many branches locally and globally. Many stores are attempting to adopt the customer-centricity model but none have achieved and prospered in it as Best Buy. Stores include PC Richard, HH Gregg, and 6th Ave. How Best Buy controls the worry of new entrants is through Customer Relationship Management (CRM) system which uses the information about customers to gain insights into their needs, wants and behaviors in order to serve them better. Best Buy measures this through a tool called the Customer satisfaction Index, which is a survey in which customers are encouraged to take where it measures how the experiences of the customers were and how the company can do better. By measuring this each store can get a better understanding on what behaviors and interactions their customers are looking for.

Rivalry Among Existing Competitors

The rivalry among existing competitors is high because there are other stores offering the same products for the same price or cheaper like radio shack, six avenue, pc Richard, and wal-mart. Most of customers are looking for best offers, low prices, and discount coupons. Best buy’s chief thinks the electronics store of the future will focus on service and connectivity, not just gadgets(fortune 500.com) best buy CEO Brian Dunn say’s that he is ready for the challenge. He plans to dull wal-mart’s attack through the concept of “connectivity”. Connectivity means services like mobile services, satellite TV, and digital photography. Best buy makes money from service provider, installation and other fees and that’s carry high revenues to the company. Again best buy is following the differentiation strategy and that’s how it survives and will.

Best Buy Business Initiatives

Best Buy uses different business initiatives to get ahead of its direct competitors; They are currently in the Process of launching Tecca which they consider that will be the Next-Generation Personal Electronics Shopping and Information Service which is a top of the line initiative. With this new and emerging technology funded by Best Buy, the company is looking to change the way people shop, if that strategy is successful; the company will largely benefits from it. Best buy used Horizontal market Application software also called productivity software. The company is an Early adaptor of technology, and their current Business initiative is proof that the company is a Top-line initiative.

IT Organization

Best Buy is consulting and outsourcing information technology from the company named Accenture focusing primarily on customer–centric model. Best Buy Co. uses a more collaborative IT organization leaning toward a matrix approach. It has a separate IT department but it sends out personnel to other functions of the organization that will collect important data and use efficiently within their departments to support the costumer-centric model. Neville Roberts is the CIO for all of Best Buy Co. He joined the company in January 2008 as CIO of Best Buy International succeeding the previous CIO Bob Willett whom he will continue to report. The company’s philosophical approach is decentralized and they focus to be early adopters of technology such as with its exclusive brands like Geek Squad, Insignia or the Best Buy’s Blue Label, “New Process for Developing Products Inspired by Listening to Costumers."

1 comment:

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